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Japan's long-sought negotiations with Iran to develop a new oil field have been put at risk by opposition from the United States. Washington has put Tokyo in a position of having to choose between oil and the alliance, but Japan can go for one without compromising the other.
In July 2001, Iranian President Mohammad Khatami became the first Iranian president to visit Japan, where he agreed to preferentially negotiate the development of the Azadegan oil field in southwestern Iran. The Azadegan oil field is one of the largest in Iran, and its proven reserves are believed to be about 2.6 billion barrels. The negotiations should have concluded by July 2003. However, they have been delayed due to dissension between Japan and Iran and recent U.S. suspicion of Iranian support for terrorist groups and a nuclear weapons program. Although the official negotiation term has expired, despite the opposition from the United States, Japan continues to press on with negotiations.
The United States strongly opposes Japan's negotiations with Iran, yet it still remains unclear how the United States will react. The United States could apply the Iran-Libya Sanctions Act (ILSA) to Japan or punish Japan in another way. Yet, the United States deems its alliance with Japan as one of its most important post-World War II relationships and seems to be unwilling to risk damaging this relationship. The good relationship is further demonstrated by Japan's decision to soon deploy Self Defense Forces (SDF) to Iraq to participate in reconstruction efforts in response to a U.S. request. Deployment of SDF to Iraq is Japan's utmost expression of its support for the United States.
Oil or the alliance? The answer does not have to be just one or the other. Japan needs to pursue the contract with Iran. Iranian oil is indispensable for Japan's secure oil supply, especially since Japan lost its oil-exploitation rights in Saudi Arabia in February 2000 and Kuwait in January 2003. Japan's proven oil reserves and oil production are essentially zero. However, Japan's consumption of oil is an incredible 5.4 million barrels per day, third behind the United States and China. To meet this demand, Japan imports about 5.1 million barrels per day. Iran has been the third-largest oil exporter to Japan, and the two countries have consequently enjoyed relatively good diplomatic relations.
Japan can pursue its contract with Iran while maintaining a close alliance with the United States. It is beneficial for the United States to let Japan use good diplomatic and economic relations as leverage to dissuade Iran from its nuclear ambitions. Japan once played the role of mediator between Iran and other countries in order to avoid Iran's isolation from the world when the Teheran embassy siege occurred in 1979. Japan did not break diplomatic ties with Iran, despite a demand from the United States. Thus, Japan should play the same role today between Iran and the United States, rather than considering Iran as part of the "axis of evil."
America's concerns about Iran are quite understandable. However, even if Japan gives up Azadegan project, money will flow into Iran anyway. Japan's backing down from the negotiations would give other countries ,such as China, Russia and the EU, countries with good diplomatic ties with Iran, the chance of winning this contract. China's interest is especially remarkable because of the increase in its oil consumption, which lately surpassed Japan's. If somebody will invest in Iran anyway, why not let Japan do it?
Another reason why Japan has been persistent on Azadegan is that Japan cannot easily back off from the deal without getting a return on its decades-long investment in Iran. Since Japan established diplomatic ties with Iran in 1926, it has provided a total of $805 million financial support for Iran's economic development, which it terms "Official Development Assistance" in order to assure positive relations with Iran.
The United States allegedly has offered Japan Iraqi oil as an incentive to drop Azadegan project. But this option would be troublesome for Japan, due to the fact that it did not participate in the war in Iraq. If Japan benefits from Iraqi oil, opposition from U.S. companies and countries with troops already in Iraq will be likely. Above all, Iraq's oil belongs to Iraqi people. The allocation of oil should not be discussed without Iraqis' presence.
Does the United States really want China, or other countries like Russia and the European Union, to invest in Iran instead of its closest ally, Japan? Now that the options are limited and time is running out, the United States should allow Japan to pursue the contract with Iran before it abandons Japan to find other investment partners.

Takuro Nozawa is a visiting fellow with the Center for Strategic and International Studies.
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